[LETTERHEAD OF MIDDLESEX WATER COMPANY]
April 12, 2004
Dear Stockholder:
I am pleased to invite you to attend Middlesex Water Company's Annual
Meeting of Stockholders that will take place on Wednesday, May 19, 2004, at
11:00 a.m., at the office of the Company, 1500 Ronson Road, Iselin, New Jersey.
YOUR VOTE IS IMPORTANT TO US. Whether or not you plan to attend the annual
meeting, I urge you to vote. Please specify your choice by marking the
appropriate boxes on the enclosed proxy card and sign, date and return your
proxy in the enclosed postpaid return envelope as promptly as possible. If you
date, sign and return your proxy card without indicating your choices, the
persons designated as proxies will vote your shares in accordance with the
recommendations of the Directors and management.
The primary business of the meeting will be election of directors,
approval of the selection of Deloitte & Touche LLP as independent auditors for
2004, and transaction of such other business as may properly come before the
meeting.
During the meeting, we will report to you on the Company's financial
status, operations and other activities during 2003, together with our goals for
2004. We welcome this opportunity to meet with our stockholders and look forward
to your comments and questions.
I look forward to seeing you on May 19th.
Sincerely,
/s/ J. Richard Tompkins
J. Richard Tompkins
Chairman of the Board
TABLE OF CONTENTS
Page
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SOLICITATION AND REVOCATION OF PROXIES 2
SHARES ENTITLED TO VOTE 2
VOTE REQUIRED AND METHOD OF COUNTING VOTES 2
GENERAL INFORMATION 2
PROPOSAL 1 - ELECTION OF DIRECTORS 4
NOMINEES FOR ELECTION AS DIRECTOR WITH TERM EXPIRING IN 2007 - CLASS II 5
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE 2004 ANNUAL MEETING 6
SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS 8
EXECUTIVE COMPENSATION 9
Summary Compensation Table 9
Compensation of Directors 10
Compensation Pursuant to Pension Plans 10
Compensation Committee Interlocks and Insider Participation 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION 12
AUDIT COMMITTEE REPORT 13
STOCK PERFORMANCE GRAPH 15
PROPOSAL 2 - APPOINTMENT OF INDEPENDENT AUDITORS 16
ACCOUNTING FIRM FEES 16
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS 16
OTHER MATTERS 17
MINUTES OF 2003 MEETING OF STOCKHOLDERS 17
MIDDLESEX
WATER COMPANY
1500 Ronson Road
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 2004
AND
PROXY STATEMENT
------------
To the Stockholders of Middlesex Water Company
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
MIDDLESEX WATER COMPANY will be held at the office of the Company, 1500 Ronson
Road, Iselin, New Jersey, on Wednesday, May 19, 2004, at 11:00 a.m., for the
following purposes:
1. To elect three members of Class II of the Board of Directors to hold
office until the Annual Meeting of Stockholders in the year 2007,
and in each case until their respective successors are elected and
qualify.
2. To consider and act upon the approval of the appointment of Deloitte
& Touche LLP as independent auditors for the year 2004.
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only holders of record of Common Stock at the close of business on March
15, 2004, will be entitled to notice of and to vote at the meeting or any
adjournment thereof.
The Company's Annual Report for the year ended December 31, 2003, has also
been mailed to stockholders with this Notice of Meeting and Proxy Statement.
If you are unable to be present at the meeting but desire to have your
shares voted, please execute the enclosed proxy and return it in the
accompanying envelope, to which no postage need be affixed if mailed in the
United States.
By Order of the Board of Directors,
/s/ Kenneth J. Quinn
KENNETH J. QUINN
General Counsel, Secretary and Treasurer
April 12, 2004
--------------------------------------------------------------------------------
IMPORTANT
To assure your representation at the meeting, please
mail the enclosed proxy promptly.
--------------------------------------------------------------------------------
MIDDLESEX
WATER COMPANY
1500 Ronson Road
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com
------------
PROXY STATEMENT
------------
Notice of the Annual Meeting of Stockholders of Middlesex Water Company to
be held on May 19, 2004, is attached. You are cordially invited to attend the
meeting. If you are unable to attend, you are requested to sign and complete the
enclosed proxy and return it in the accompanying envelope.
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company. The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by mail, the Company may make arrangements with
brokerage houses and other custodians, nominees, and fiduciaries to send proxies
and proxy material to their principals and will reimburse them for their
expenses in so doing. The solicitations will be initially by mail, and it may
later be decided to make further solicitations by mail, telephone, telegram,
facsimile, electronic mail or in person by Directors, Officers and employees of
the Company. This proxy statement and the accompanying proxy are first being
sent to stockholders on or about April 12, 2004.
The giving of a proxy does not preclude the right to vote in person should
the stockholder giving the proxy so desire, and a proxy may be revoked by giving
notice to the Secretary of the Company in writing at any time prior to the
commencement of the meeting or in open meeting prior to the taking of the vote
to which such revocation relates.
SHARES ENTITLED TO VOTE
As of March 15, 2004, there were outstanding 10,588,947 shares of Common
Stock, which is the only class of capital stock entitled to vote at the Annual
Meeting. Each holder of Common Stock is entitled to one vote for each share
held. As stated in the Notice of Meeting, holders of record of Common Stock at
the close of business on March 15, 2004, will be entitled to vote at the meeting
or any adjournment thereof.
VOTE REQUIRED AND METHOD OF COUNTING VOTES
The affirmative vote of a plurality of the votes cast at the meeting is
required for the election of Directors. For the ratification of the appointment
of Deloitte & Touche LLP, the affirmative vote of the holders of a majority of
the shares represented, in person or by proxy, and entitled to vote on the item
will be required. Abstentions and broker non-votes will not be included in
determining the number of votes cast concerning any matter.
GENERAL INFORMATION
Management of the Company is under the general direction of the Board of
Directors who are elected by the stockholders. The Board of Directors holds
regular monthly meetings and meets on other occasions when required in special
circumstances. The Board of Directors held twelve meetings and the Board
Committees held twenty-five meet-
2
ings during the year 2003. Each incumbent Director attended 95% or more of the
total number of meetings of the Board and Committees on which each served.
The Board of Directors has an Audit Committee, consisting of Annette
Catino (appointed in January 2003), John C. Cutting, John R. Middleton, M.D. and
John P. Mulkerin (who has been designated as the Audit Committee Financial
Expert), which reviews with the independent auditors the scope of the annual
audit; receives and reviews the auditors' annual report; reviews the
independence of the independent auditors, services provided by them and their
fees; recommends to the Board of Directors the inclusion of the audited
financial statements in the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K; and is directly responsible for the
appointment of an independent accounting firm for the following calendar year.
The Board of Directors has adopted a written Charter for the Audit Committee,
available on the Company's website at www.middlesexwater.com. The Committee held
seven meetings during the year 2003.
The Board of Directors has a Capital Improvement Committee, consisting of
John C. Cutting, Stephen H. Mundy and J. Richard Tompkins, which reviews the
Capital Budget and monitors the capital projects and expenditures during the
year. The Committee reports its findings to the Board of Directors. The
Committee held five meetings during 2003.
The Board of Directors has a Compensation Committee consisting of John R.
Middleton, M.D., Stephen H. Mundy and Jeffries Shein, which reviews and makes
recommendations to the Board of Directors as to the salaries and benefits of the
Executive Officers of the Company and administers the Restricted Stock Plan. The
Committee held two meetings during 2003.
The Board of Directors has a Corporate Governance Committee, consisting of
John R. Middleton, M.D., John P. Mulkerin and Walter G. Reinhard, which reviews
and makes recommendations relating to the governance of the Company, the
performance and composition of the Board and Board committees, succession
planning and significant organization changes. The Board of Directors has
adopted a written Charter for the Corporate Governance Committee, available on
the Company's website at www.middlesexwater,com. The Committee held five
meetings during the year 2003.
The Board of Directors has a Nominating Committee, consisting of John P.
Mulkerin, Stephen H. Mundy and Jeffries Shein, which makes recommendations to
the Board of Directors with respect to nominations for the Board. The Committee
held two meetings during the year 2003. The Nominating Committee acts as a
screening committee for candidates considered for election to the Board. In this
capacity, it concerns itself with the composition of the Board with respect to
depth of experience, balance of professional interests, required expertise and
other factors and evaluates prospective nominees identified by the Nominating
Committee or referred by other Board members, management, shareholders or
external sources. The Nominating Committee will consider stockholders'
recommendations for nominees for election to the Board of Directors.
Recommendations should be sent to Middlesex Water Company, Office of the
Secretary, 1500 Ronson Road, P.O. Box 1500, Iselin, New Jersey 08830-0452; or
sent via the internet to the following e-mail address: info@middlesexwater.com.
Nominations must be accompanied by the written consent of any such person to
serve if nominated and elected and by biographical material to permit evaluation
of the individual recommended. The Secretary of the Company should receive any
nominations for Director by the close of business on December 12, 2004, in order
to be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 2005 Annual Meeting of Stockholders. The Board of
Directors has adopted a written Charter for the Nominating Committee, which is
available on the Company's website at www.middlesexwater.com.
The Board of Directors has a Pension Committee, consisting of John C.
Cutting, John P. Mulkerin and Jeffries Shein, which reviews investment policies
and determines recommended investment objectives for the Company's Pension Plan.
The Committee meets quarterly with the Company's Investment Managers. The
Committee held four meetings during the year 2003.
3
The Board of Directors appoints an ad hoc Pricing Committee to meet, as
needed, to review financial matters including, but not limited to, the pricing
and issuance of common stock. The Committee consists of John C. Cutting, John P.
Mulkerin and Jeffries Shein.
The Board of Directors has also adopted a Code of Conduct that applies to
all of our Directors, Officers and employees. You can find links to these
materials on our website at www.middlesexwater.com.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders three members of Class II of the
Board of Directors are to be elected each to hold office until the Annual
Meeting of Stockholders in the year 2007, and until their respective successors
are elected and qualified. The present terms of the three Directors included in
Class II expire at the year 2004 Annual Meeting.
Proxies in the accompanying form will be voted for these nominees, unless
authority to vote for one or more of them shall have been withheld by so marking
the enclosed proxy. Directors shall be elected by a plurality of the votes cast
at the election.
If at the time of the meeting any of the nominees listed should be unable
to serve, which is not anticipated, it is the intention of the persons
designated as proxies to vote, in their discretion, for other nominees, unless
the number of Directors constituting a full Board is reduced.
There is shown as to each nominee, and as to each Director whose term of
office will continue after the year 2004 Annual Meeting, age as of the date of
the Annual Meeting, Class, the period of service as a Director of the Company,
and business experience during the last five years.
4
NOMINEES FOR ELECTION AS
DIRECTORS WITH TERMS EXPIRING IN 2007 - CLASS II
Business Experience
Name, Class, Period Served as During Past Five Years
Director of Company Age and Other Affiliations
------------------- --- ----------------------
[PHOTO] 47 President and CEO of QualCare Alliance Networks, Inc.,
Piscataway, New Jersey, a managed care organization, since
Annette Catino 1991. Director of Caucus NJ Educational Corporation, Jersey
Class II Director since Shore Medical Center Foundation, Executive Women of New Jersey
January 2003 and Northfield Savings; Member of Somerset Medical Center,
Women's Health Advisory Board and The Val Skinner Foundation.
Member of Audit Committee.
[PHOTO] 70 Retired. Formerly Vice President, A. Stanley Mundy, Inc.,
Public Utility Contractor, Virginia Beach, Virginia.
Stephen H. Mundy
Class II Director since 1977 Chairman of Compensation Committee and Member of Capital
Improvement Committee and Nominating Committee.
[PHOTO] 58 Member, Law Firm of Norris, McLaughlin & Marcus, P.A. of
Bridgewater, New Jersey, since 1984. Director of the
Walter G. Reinhard (1) Fanwood-Scotch Plains YMCA.
Class II Director since
September 2002 Chairman of Corporate Governance Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR PROPOSAL 1.
5
DIRECTORS WHOSE TERMS CONTINUE BEYOND
THE 2004 ANNUAL MEETING AND ARE NOT
SUBJECT TO REELECTION THIS YEAR
Name, Class, Period Served as Business Experience
Director of Company, During Past Five Years
Term Expiration Date Age and Other Affiliations
-------------------- --- ----------------------
[PHOTO] 67 Retired. Formerly Senior Engineer, Science Applications
International Corporation, specialists in information, energy
John C. Cutting and military systems, Pittsburgh, Pennsylvania.
Class I Director since 1997
Term Expires 2006 Chairman of Pension Committee and Capital Improvement
Committee and Member of Audit Committee and ad hoc Pricing
Committee.
[PHOTO] 59 Chair of the Department of Medicine and Chief Medical Officer
of Raritan Bay Medical Center. Fellow of American College of
John R. Middleton, M.D. Physicians and Member of the Infectious Diseases Society of
Class III Director since 1999 America.
Term Expires 2005
Member of the Audit Committee, Compensation Committee and
Corporate Governance Committee.
[PHOTO] 66 Retired. Formerly President and Chief Executive Officer and
currently a Director of First Sentinel Bancorp, Inc., Holding
John P. Mulkerin (2) Company for First Savings Bank, Perth Amboy, New Jersey.
Class I Director since 1997 Director of Raritan Bay Medical Center and Daytop Village
Term Expires 2006 Foundation.
Chairman of Audit Committee and Audit Committee Financial
Expert; Member of Corporate Governance Committee, Nominating
Committee, Pension Committee and ad hoc Pricing Committee.
[PHOTO] 64 Managing Partner, JGT Management Co., LLC, a management and
investment firm, since 2003 and formerly Partner, Jacobson,
Jeffries Shein (2) Goldfarb & Tanzman Associates, a commercial real estate
Class III Director since 1990 brokerage firm, since 1972, Woodbridge, New Jersey. Director
Term Expires 2005 of Raritan Bay Medical Center and Director of First Sentinel
Bancorp, Inc., Holding Company for First Savings Bank, Perth
Amboy, New Jersey.
Chairman of Nominating Committee and ad hoc Pricing Committee
and Member of Compensation Committee and Pension Committee.
6
Name, Class, Period Served as Business Experience
Director of Company, During Past Five Years
Term Expiration Date Age and Other Affiliations
-------------------- --- ----------------------
[PHOTO] 62 President and Chief Executive Officer of the Company since
January 2003, prior to that date was President and General
Dennis G. Sullivan Counsel since May 2001; Senior Vice President and General
Class I Director since 1999 Counsel since July 2000 and Vice President and General Counsel
Term Expires 2006 since May 1990. Director and Chairman of Tidewater Utilities,
Inc. (TUI); Pinelands Water Company and Pinelands Wastewater
Company; Utility Service Affiliates, Inc., Utility Service
Affiliates (Perth Amboy) Inc.; Bayview Water Company, and
White Marsh Environmental Systems, Inc., a subsidiary of TUI.
[PHOTO] 65 Chairman of the Board of the Company since May 1990. President
from May 1981-2003. Currently serves as a consultant to the
J. Richard Tompkins Company. Past President of National Association of Water
Class III Director since 1981 Companies and New Jersey Utilities Association. Director of
Term Expires 2005 Tidewater Utilities, Inc. (TUI). Director of White Marsh
Environmental Systems, Inc., a subsidiary of TUI.
Member of Capital Improvement Committee.
----------
(1) Norris, McLaughlin & Marcus, P.A., has provided legal services to the
Company in the areas of corporate and regulatory matters for over 30
years.
(2) The Company has established a $7,000,000 line of credit with First Savings
Bank, Perth Amboy, New Jersey.
7
SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 15, 2004, beneficial ownership
of Middlesex Water Company Common Stock by the elected Directors, Executive
Officers named in the table appearing under Executive Compensation and all
elected Directors and Executive Officers as a group. Jeffries Shein owned 1.45%
of the shares outstanding on March 15, 2004. All other individual elected
Directors and Executive Officers owned less than 1% of the shares outstanding on
March 15, 2004.
Amount and Nature
of Beneficial
Name Ownership
---- ---------
Directors
Annette Catino 2,732
John C. Cutting 29,860
John R. Middleton, M.D. 4,740
John P. Mulkerin 7,000
Stephen H. Mundy 50,598
Walter G. Reinhard 1,496
Jeffries Shein 154,259
Dennis G. Sullivan 13,892
J. Richard Tompkins 38,772
Named Executive Officers
Walter J. Brady 21,014
A. Bruce O'Connor 17,017
Kenneth J. Quinn 333
Marion F. Reynolds 31,863
Ronald F. Williams 13,481
All elected Directors and Executive Officers
as a group including those named above 387,057*
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* 3.65% of the shares outstanding on March 15, 2004.
The following table sets forth information made known to the Company as of
March 15, 2004, of any person or group to be the beneficial owner of more than
five percent of the Company's Common Stock:
Number of Shares
Beneficially Owned
and Nature of Percent
Name and Address Beneficial Ownership (1) of Class
---------------- -------------------- --------
Verona Construction Company 659,600 6.2%
Wilmington, Delaware 19801
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(1) Beneficial owner has sole power to vote and dispose of such shares.
8
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the years 2003,
2002 and 2001 for the Chief Executive Officer and the four most highly
compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Name and Restricted All Other Annual
Principal Position Year Salary Stock Award Compensation
------------------ ---- ------ ----------- ------------
(1) (2)
J. Richard Tompkins (3) 2003 $ 40,385 $45,459 $32,759
Chairman of the Board 2002 $294,631 $33,570 $ 9,406
2001 $276,631 $26,180 $ 9,003
Dennis G. Sullivan 2003 $254,450 $37,883 $10,902
President and 2002 $191,073 $26,856 $ 8,943
Chief Executive Officer 2001 $164,246 $13,090 $ 7,379
A. Bruce O'Connor 2003 $170,489 $30,306 $ 6,348
Vice President, Controller 2002 $153,939 $22,380 $ 5,590
and Chief Financial Officer 2001 $140,016 $13,090 $ 5,086
Ronald F. Williams 2003 $164,044 $25,255 $ 5,987
Vice President - Operations 2002 $147,518 $22,380 $ 6,222
and Chief Operating Officer 2001 $133,939 $13,090 $ 5,106
Marion F. Reynolds (4) 2003 $140,472 $27,781 $ 6,347
Vice President, Secretary 2002 $123,944 $22,380 $ 5,519
and Treasurer 2001 $122,271 $13,090 $ 5,375
Kenneth J. Quinn 2003 $111,061 $ 6,313 $ 3,395
General Counsel, 2002 $ 48,456 -- $ 133
Assistant Secretary 2001 -- -- --
Walter J. Brady (5) 2003 $ 87,682 $30,306 $ 4,031
Senior Vice President-Administration 2002 $152,515 $22,380 $ 7,376
2001 $142,169 $13,090 $ 6,361
(1) The number and value of Restricted Stock held in escrow as of December 31,
2003, were as follows: Mr. Tompkins - 10,933/$220,191; Mr. Sullivan -
8,000/$161,120; Mr. O'Connor - 7,333/$147,687; Mr. Williams -
7,067/$142,329; Ms. Reynolds - 7,200/$145,008; and Mr. Quinn -333/$6,707.
Generally the restrictions lapse on these awards five years from the date
of grant. The restrictions also lapse in the event of a change in control
of the Company. All dividends on these shares are paid to the awardees.
(2) Includes employer contributions to the Company's defined contribution plan
and life insurance premiums for 2003: Mr. Tompkins ($1,413 and $821 and
includes Board Fees totaling $30,525), Mr. Sullivan ($8,167 and $2,735),
Mr. O'Connor ($4,697 and $186), Mr. Williams ($4,270 and $567), Ms
Reynolds ($4,929 and $1,418), Mr. Brady ($4,841 and $830) and Mr. Quinn
($2,767 and $628); for 2002: Mr. Tompkins ($6,417 and $2,989), Mr.
Sullivan ($7,000 and $1,943), Mr. O'Connor ($5,374 and $216), Mr. Williams
($5,732 and $490), Ms Reynolds ($4,378 and $1,141), Mr. Brady ($5,907 and
$1,469), and Mr. Quinn ($0 and $133); for 2001: Mr. Tompkins ($5,950 and
$3,053), Mr. Sullivan ($5,735 and $1,644),
9
Mr. O'Connor ($4,887 and $199), Mr. Williams ($4,674 and $432), Ms
Reynolds ($4,265 and $1,110), and Mr. Brady ($4,962 and $1,399).
(3) Mr. Tompkins retired as an employee of the Company effective February 1,
2003. Mr. Tompkins received the sum of $45,833 in consulting fees during
2003.
(4) Ms. Reynolds retired as an employee of the Company effective March 1,
2004.
(5) Mr. Brady retired as an employee of the Company effective July 1, 2003.
Upon Mr. Brady's retirement on July 1, 2003, restrictions lapsed on 5,500
shares previously held in escrow for his benefit.
COMPENSATION OF DIRECTORS
A Director who is not an officer of the Company or its subsidiaries is
paid an annual retainer and fees for each meeting attended. The Corporate
Governance Committee conducted a Directors' Compensation study and recommended
the following changes to Directors' Compensation be made effective October 1,
2003: that the annual retainer for outside Directors be increased from $8,000 to
$12,000 per annum; that the fee for outside Directors for each Board meeting
attended be increased from $600 to $800; that the fee for inside Directors for
each Board meeting attended be increased from $300 to $400; that the fee for
outside Directors for each Committee meeting attended be increased from $400 to
$500 per meeting; that the retainer for each Committee Chairperson be $1,000
annually; that the fee for Special Board meetings via communication be increased
from $300 to $400; and that the fee for Special Committee meetings via
communication be increased from $150 to 200 per meeting. The Chairman of the
Board will receive an annual retainer of $12,000 per year.
COMPENSATION PURSUANT TO PENSION PLANS
Annual Benefit based on Average Annual Compensation and Years of Service
---------------------------------------------------------------
Remuneration Years of Service
---------------------------------------------------------------
15 20 25 30 35 45
-------- -------- -------- -------- -------- --------
$100,000 $ 52,799 $ 52,799 $ 52,799 $ 52,799 $ 52,799 $ 68,997
$125,000 $ 71,549 $ 71,549 $ 71,549 $ 71,549 $ 73,122 $ 88,747
$150,000 $ 90,299 $ 90,299 $ 90,299 $ 90,299 $ 90,299 $108,497
$175,000 $109,049 $109,049 $109,049 $109,049 $109,049 $128,247
$200,000 $127,799 $127,799 $127,799 $127,799 $127,799 $147,997
$225,000 $146,549 $146,549 $146,549 $146,549 $146,549 $147,997
$250,000 $165,299 $165,299 $165,299 $165,299 $165,299 $165,299
$300,000 $202,799 $202,799 $202,799 $202,799 $202,799 $202,799
All employees, including the named executives, who receive pay for 1,000
hours during the year are included in the Company's Qualified Defined Benefit
Pension Plan (Qualified Plan). Under the noncontributory trusteed Qualified
Plan, current service costs are funded annually. The Company's annual
contribution is determined on an actuarial basis. Benefits are measured from the
member's entry date and accrue to normal retirement date or date of early
retirement. Benefits are calculated, at normal retirement, at 1.25% of pay up to
the employee's benefit integration level, plus 1.9% of such excess pay,
multiplied by service to normal retirement date, capped at 35 years of such
excess pay, multiplied by service to normal retirement date of age 65. Average
pay is the highest annual average of
10
total pay during any 5 consecutive years within the 10 calendar-year period
prior to normal retirement date. The benefit integration level is based on the
2003 Summary Compensation Table. The benefit amounts are not subject to any
deduction for Social Security benefits or other offset amounts.
During the year 2003, the Company was required to make a statutory
contribution to the Qualified Plan in the amount of $0.9 million.
The estimated credited years of service based on normal retirement at age
65 includes 22 years, 33 years, 19 years and 11 years for Messrs. Sullivan,
O'Connor, Williams and Quinn, respectively.
Supplemental Executive Retirement Plan - Messrs. Sullivan, O'Connor, and
Williams and Ms. Reynolds are eligible to participate in the deferred
compensation plan known as the Supplemental Executive Retirement Plan (Executive
Plan) at the discretion of the Board of Directors.
A participant who retires on his normal retirement date is entitled to an
annual retirement benefit equal to 75% of his compensation reduced by his
primary Social Security benefit and further reduced by any benefit payable from
the Qualified Plan. In certain cases further reductions are made for benefits
from other employment. Generally, a participant is vested at 10 years of
service. Annual retirement benefits are payable for 15 years either to the
participant or his beneficiary. Retirement benefits may be in the form of single
life annuity, joint and 50% survivors annuity, joint and 100% survivors annuity,
single life annuity with a 10-year certain period and single life annuity with a
15-year certain period paid on an actuarial equivalent basis.
The Company is not obligated to set aside or earmark any monies or other
assets specifically for the purpose of funding the Executive Plan, except that
upon a change of control the Company would be obligated to make contributions to
a trust anticipated to be sufficient to meet its obligations under the Executive
Plan. In any event, the benefits are in the form of an unfunded obligation of
the Company. The Company has elected to purchase corporate-owned life insurance
as a means of satisfying its obligation under the Executive Plan. The Company
reserves the right to terminate any plan or life insurance at any time; however,
a participant is entitled to any benefits he would have been entitled to under
the Executive Plan provisions. For the year 2003 the Company paid life insurance
premiums totaling $0.1 million for Messrs. Sullivan, O'Connor, and Williams,
which provides a pre-retirement net death benefit of 1-1/2 times base salary at
date of death.
Defined Contribution Plan - Under its 401(k) Plan, the Company matches
100% of that portion of the employee contribution that does not exceed 1% of
base pay, plus an additional 50% of that portion from 2% to 6% of base pay.
Distributions under the 401(k) Plan are made upon normal retirement, total and
permanent disability or death and are subject to certain vesting provisions as
to Company contributions.
Change of Control Agreements - The Company has change of control
termination agreements with the named executive officers. These agreements
generally provide that if the executive is terminated by the Company, other than
for death, disability, cause (as defined in the agreement) or good reason (as
defined in the agreement) within three years after a change of control, the
executive is entitled to receive (a) a lump sum severance payment equal to the
sum of three times the executive's average total compensation for the five years
prior to the termination; (b) continued coverage for three years under any
health or welfare plan in which the executive and the executive's dependents
were participating; and (c) an additional amount sufficient to pay any
additional tax liability resulting from the severance payments and benefits
under this, and any other plans or agreements. In addition, the executive will
be entitled to receive benefits under the Executive Plan, at the executive's
otherwise normal retirement date, with such benefits calculated as if the
executive had continued employment to age 65, unless the executive elects to
receive such benefits at a lesser amount at termination. Further, all restricted
stock held by the executive will become unrestricted (with respect to the plan's
five year holding period) upon a change of control.
11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the 2003 Compensation Committee were John R. Middleton,
M.D., Stephen H. Mundy and Jeffries Shein. During 2003, no member of the
Compensation Committee was an officer or employee of the Company or a
subsidiary.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee of the Board of Directors administers the
compensation program for executive officers of the Company. The Committee for
the year 2003 was composed of three independent Directors: John R. Middleton,
M.D., Stephen H. Mundy and Jeffries Shein. The Committee is responsible for
setting and administering the policies that govern annual compensation and
Restricted Stock awards. The full Board of Directors approves policies and plans
developed by the Committee.
The Committee's compensation policies and plans applicable to the
executive officers seek to enhance the profitability of the Company and
shareholder value, as well as control costs and maintain reasonable rates for
the customers. The Committee's practices reflect policies that compensation
should (1) attract and retain well-qualified executives, (2) support short- and
long-term goals and objectives of the Company, (3) reward individuals for
outstanding contributions to the Company's success, (4) be meaningfully related
to the value created for shareholders, and (5) relate to maintenance of good
customer relations and reasonable rates.
The Committee meets with the Chief Executive Officer to evaluate the
performance of the other executive officers and meets in the absence of the
Chief Executive Officer to evaluate his performance. The Committee reports on
all executive evaluations to the full Board of Directors.
Salary Compensation
Base salary levels are reviewed annually using compensation data produced
by an independent compensation consultant for similar positions and comparable
companies. Base salaries for satisfactory performance are targeted at the median
of the competitive market. Individual performance of the executive is determined
and taken into account when setting salaries against the competitive market
data. The Committee reviews, as well, the individual's efforts on cost control
and his or her contributions to the results of the year. The Committee also
reviews the Company's financial results compared with prior years and compared
with other companies. It compares salaries with both water and general industry
salaries.
The factors and criteria upon which the Chief Executive Officer's
compensation was based generally include those discussed with respect to all the
executive officers. Specifically, however, his salary is based on his overall
performance and that of the Company. His salary was set at a rate, which was
approximately the median of the utility market and below that of the general
industry. In addition, in evaluating the performance of the Chief Executive
Officer, the Committee has taken particular note of management's success with
respect to the growth of the Company.
Restricted Stock
The Company maintains a restricted stock plan for the purpose of
attracting and retaining key executives and other employees having managerial or
supervisory responsibility who have contributed, or are likely to contribute,
significantly to the long-term performance and growth of the Company and its
subsidiaries. This plan is designed to enhance financial performance, customer
service and corporate efficiency through a performance-based stock award.
12
Annual stock awards are based upon several factors including the participant's
ability to contribute to the overall success of the Company.
The level of awards and the value of the performance are reviewed annually
by the Committee. The Committee submits reports on all executive evaluations and
restricted stock awards to the full Board of Directors for approval.
Year 2004 Compensation Committee
Stephen H. Mundy, Chairman
John R. Middleton, M.D.
Jeffries Shein
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of four
independent directors, one of whom falls within the definition of "Audit
Committee Financial Expert," as defined by the Securities and Exchange
Commission. The Committee for the year 2003 was composed of: Annette Catino,
John C. Cutting, John R. Middleton, M.D. and John P. Mulkerin. Annette Catino
was appointed a member of the Audit Committee in January 2003. The Audit
Committee operates under a written Charter adopted by the Board of Directors and
reviewed annually by the Committee.
Management is responsible for the Company's financial statements and
internal controls. The independent accountants of Middlesex Water, Deloitte &
Touche LLP, are responsible for performing an independent audit of the Company's
annual consolidated financial statements in accordance with generally accepted
auditing standards and for issuing a report thereon. The Committee's
responsibility is to assist the Board of Directors in overseeing the quality and
integrity of the accounting, auditing and financial reporting practices.
In this context, the Committee has met and held discussions with
management and the independent accountants. Management represented to the
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Committee has
reviewed and discussed the consolidated audited financial statements with
management and the independent accountants. The Committee discussed with the
independent accountants the matters required to be discussed by Statement on
Auditing Standards No. 61, as amended (Communication with Audit Committees),
which includes, among other things:
o Changes in significant accounting policies;
o The process used by management in formulating accounting estimates
and the basis for the auditors' conclusions regarding the
reasonableness of these estimates;
o Any disagreements, if any, with management over the application of
accounting principles;
o Audit adjustments; and
o Disclosures in the financial statements.
The independent accountants also provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants the firm's independence with respect to
Middlesex Water and its management. The Committee has the sole authority to
preapprove permitted non-audit services performed by the independent accountants
and has considered whether the independent accountants' provision of non-audit
services to the Company is compatible with maintaining their independence.
13
Based on the Committee's discussions with management and the independent
accountants, the Committee's review of the audited financial statements, the
representations of management regarding the audited financial statements and the
report of the independent accountants to the Committee, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, for filing with the Securities and Exchange Commission.
The Committee also discussed with senior management the process used for
the establishment and maintenance of disclosure controls and procedures in
quarterly and annual reports which is required by the Securities and Exchange
Commission (SEC) and the Sarbanes-Oxley Act of 2002 for certain of the Company's
filings with the SEC.
The Committee met privately with the independent auditors who have
unrestricted access to the Audit Committee.
Year 2004 Audit Committee
John P. Mulkerin, Chairman
Annette Catino
John C. Cutting
John R. Middleton, M.D.
14
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total return (which includes reinvestment of dividends) of a $100
investment for the Company's Common Stock, a peer group of investor-owned water
utilities, and the Wilshire 5000 Stock Index for the period of five years
commencing December 31, 1998. The current peer group includes American States
Water Company, Artesian Resources Corp., California Water Service Company,
Connecticut Water Service, Inc., Pennichuck Corp., Aqua America, SJW Corp.,
Southwest Water Company, York Water Company and the Company. The Wilshire 5000
Stock Index measures the performance of all U.S. headquartered equity securities
with readily available price data.
[LINE GRAPH]
--------------------------------------------------------------------------------
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
--------------------------------------------------------------------------------
Middlesex $100 $138 $151 $158 $152 $202
--------------------------------------------------------------------------------
Peer Group 100 148 140 142 137 166
--------------------------------------------------------------------------------
Wilshire 5000 100 122 108 95 74 95
--------------------------------------------------------------------------------
15
PROPOSAL 2
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has appointed Deloitte & Touche LLP of Parsippany, New
Jersey, as independent auditors to perform the annual audit of the books of
account and supporting records of the Company for the year 2004, subject to the
ratification of the stockholders entitled to vote for the election of Directors,
by a majority of the votes cast on the question of such approval, provided a
quorum is present, at the Annual Meeting of Stockholders.
Representatives of Deloitte & Touche LLP will be present at the meeting,
and will be afforded an opportunity to make a statement if they so desire and to
respond to appropriate questions.
ACCOUNTING FIRM FEES
Aggregate fees billed to the Company for the fiscal year ending December
31, 2003, and 2002 by the Company's accounting firm, Deloitte & Touche LLP:
Year ended December 31,
2003 2002
-------- --------
Audit Fees {a} $231,000 $148,105
Audit-Related Fees {b} 20,000 27,000
-------- --------
Total audit and audit-related fees $251,000 $175,105
Tax Fees {c} $ 19,000 $ 17,850
All Other Fees 0 0
-------- --------
Total Fees $270,000 $192,955
{a} Includes fees for audits of financial statements of the
Company and a subsidiary, reviews of the financial statements
included in the Company's quarterly reports on Form 10-Q and
for services rendered in connection with certain financing
transactions.
{b} Includes 2003 fees for the audits of employee benefit plans of
$20,000. Includes 2002 fees for the audits of employee benefit
plans of $15,000 and certain agreed-upon procedures of
$12,000.
{c} Includes 2003 and 2002 fees for the preparation of tax returns
and tax related services of $19,000 and $17,850, respectively.
In March 2003, the Audit Committee established pre-approval policies and
procedures for all audit and non-audit services to be performed by Deloitte &
Touche LLP. The Audit Committee approves 100% of the services related to
Audit-Related Fees, Tax Fees and All Other Fees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE APPOINTMENT OF DELOITTE & TOUCHE LLP.
STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. Should a stockholder intend to present a proposal at the annual
meeting to be held in the year 2005, you must submit your proposal to the
Secretary of the Company at 1500 Ronson Road, P.O. Box 1500, Iselin, New Jersey
08830-0452, not later than December 12, 2004, in order to be considered for
inclusion in the Company's proxy statement and form of proxy relating to the
2005 Annual Meeting.
16
OTHER MATTERS
The management of the Company does not intend to bring any other matters
before the meeting and has no reason to believe any will be presented to the
meeting. If, however, other matters properly do come before the meeting, it is
the intention of the persons named in the accompanying proxy to vote in
accordance with their judgment in such matters.
MINUTES OF 2003 MEETING OF STOCKHOLDERS
The minutes of the 2003 meeting of Stockholders will be submitted at the
meeting for the correction of any errors or omissions but not for the approval
of the matters referred to therein.
By Order of the Board of Directors,
/s/ Kenneth J. Quinn
KENNETH J. QUINN
General Counsel, Secretary and Treasurer
Iselin, New Jersey
April 12, 2004
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and files an Annual Report on Form 10-K with the Securities
and Exchange Commission. Additional copies of the 2003 Annual Report on Form
10-K filed by the Company, including the financial statements and schedules, but
without exhibits, can be mailed without charge to any shareholders. The exhibits
are obtainable from the Company upon payment of the reasonable cost of copying
such exhibits. The 2003 Annual Report on Form-10-K can also be found on the
Company website at www.middlesexwater.com. Shareholders can request this
information by phone at 732-634-1500, ext. 216, e-mail kquinn@middlesexwater.com
or by mail to Kenneth J. Quinn, General Counsel, Secretary and Treasurer,
Middlesex Water Company, 1500 Ronson Road, Iselin, New Jersey 08830.
17
MIDDLESEX
WATER COMPANY
1500 Ronson Road
Iselin, New Jersey 08830-0452
732-634-1500
www.middlesexwater.com
[MAP]
DIRECTIONS TO MIDDLESEX WATER COMPANY
FROM GARDEN STATE PARKWAY (NORTH OR SOUTH): Take Exit 131A to fourth traffic
light. Turn right onto Middlesex-Essex Turnpike and proceed (about 1/2 mile) to
third traffic light (Gill Lane). Turn right and go (about 1 mile) under railroad
underpass and make right onto Ronson Road. Proceed past three large mirror-sided
office buildings on the right. At the sign, make a right into Middlesex Water
Company.
FROM NEW JERSEY TURNPIKE (NORTH OR SOUTH): Take Exit 11 onto the Garden State
Parkway North and follow above directions.
FROM US ROUTE NO. 1 (NORTH OR SOUTH): Proceed to the Woodbridge Center area and
follow signs to Gill Lane. When on Gill Lane, make left turn onto Ronson Road
and follow above directions.
REVOCABLE PROXY
MIDDLESEX WATER COMPANY
[_]PLEASE MARK VOTES AS IN THIS EXAMPLE
ANNUAL MEETING OF SHAREHOLDERS MAY 19, 2004
The undersigned stockholder(s) hereby appoint(s) John R. Middleton, M.D. and J.
Richard Tompkins, and each of them, proxies, with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as designated,
all the shares of common stock of Middlesex Water Company held on record by the
undersigned on March 15, 2004, at the annual meeting of shareholders to be held
on May 19, 2004, at 11:00 a.m., local time or any adjournment thereof.
With- For All
For hold Except
1. Election of Directors, Nominees for [ ] [ ] [ ]
Class II term expiring in 2007 are:
Annette Catino, Stephen H. Mundy and
Walter G. Reinhard For Against Abstain
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
For Against Abstain
2. Approve the appointment of Deloitte & [ ] [ ] [ ]
Touche LLP as auditors for the Company
for the year 2004.
In their discretion, the Proxies are authorized to vote upon such other business
that may properly come before the meeting.
[_] PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE MEETING.
If this Proxy is properly executed and returned, the shares repre-sented hereby
will be voted. If not otherwise specified, this Proxy will be voted FOR the
persons nominated as directors, and FOR proposal number 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please be sure to sign and date this Proxy in the box below.
----------------------------------------
Date
----------------------------------------
Shareholder sign above
----------------------------------------
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
MIDDLESEX WATER COMPANY
c/o Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
www.middlesexwater.com
----------------------
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If signer is a corporation, please sign full corporate
name by authorized officer and attach a corporate seal. For joint account, each
joint owner should sign.
PLEASE ACT PROMPTLY
BE SURE TO COMPLETE, SIGN AND RETURN THIS PROXY, WHETHER OR NOT YOU ELECT TO BE
PRESENT IN PERSON. ALL SIGNATURES MUST APPEAR EXACTLY AS NAMES APPEAR ON THIS
PROXY.
THANK YOU
Annual Meeting of Shareholders - May 19, 2004, at 11:00 a.m.
Middlesex Water Company - 1500 Ronson Rd., Iselin, NJ
IF YOUR ADDRESS HAS CHANGED, PLEASE PRINT YOUR NEW ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH YOUR PROXY IN THE ENVELOPE PROVIDED.
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